Miscellaneous 457 plan issues

[Guest Lisa]

The State of Ohio offers the Ohio Public Employees Deferred Compensation program pursuant to Ohio Revised Code 145.71-.76. The program appears to be enrolled and serviced exclusively by a national firm, via their office in Columbus, Ohio (Copeland Companies). There are currently 118,000 employees enrolled in the program.

Query: The Ohio Revised Code allows a state government unit to offer up to 2 additionl deferred compensation plans to its officers and employees. An Ohio County Water Authority has expressed interest in having my firm establish and administer a 457 plan for them.

1. Do most states offer a large deferred comp program such as the Ohio Public Employees Deferred Compensation Program? If yes, is it common for single government units such as a county water authority to also offer a separate program? I am having a hard time seeing why an employee would choose a separate 457 plan established just for the water authority over the larger Ohio Public Employees Deferred Comp Program. Also, with limitations on the amount that any one employee can defer, would it make sense to establish a second plan?

2. Am I correct in assuming that the Ohio Public Employees Deferred Compensation Program is administered exclusively by one firm? If yes, is this exclusivity in plan administration common for governmental programs of this type?

3. If I am interested in getting into the 457 plan administration arena, can I help the water authority establish a 457 plan? In other words, does a county water authority qualify to have a 457 deferred comp plan?

4.More importantly, can any qualified plan administration firm administer a 457 plan or must the State choose the plan administrator?

5.Are prototype 457 plan documents available?

Thank you for your patience in answering these questions.

[This message has been edited by Lisa (edited 08-30-98).]

[Guest CVCalhoun]

One more thought: a listing for a Web site dealing with the Ohio Public Employees Deferred Compensation Program (and listings for other state pension plan Web sites, both for Ohio and for other states) can be found by clicking here. The site for the Deferred Compensation Program does not include a whole lot of information, but it would at least give you contact names and phone numbers whom you might call for further information.

[Guest CVCalhoun]

Okay, let me try responding to your questions, in order:

1. Do most states offer a large deferred comp program such as the Ohio Public Employees Deferred Compensation Program? If yes, is it common for single government units such as a county water authority to also offer a separate program?

Sorry, this one is a question of practice, not law, and I don't know the answer. Does someone else?

I am having a hard time seeing why an employee would choose a separate 457 plan established just for the water authority over the larger Ohio Public Employees Deferred Comp Program. Also, with limitations on the amount that any one employee can defer, would it make sense to establish a second plan?

You are right, a second plan would not enable an employee to defer any more money. A second plan would be useful only if the local authority thought that it could offer features (e.g., a better investment manager, more flexible distribution options) that employees would prefer to those in the state plan.

2. Am I correct in assuming that the Ohio Public Employees Deferred Compensation Program is administered exclusively by one firm?

Don't know the answer to this one--can someone else help?

If yes, is this exclusivity in plan administration common for governmental programs of this type?

Absolutely! The vast majority of governmental section 457 plans we have seen are administered by one firm--and typically provide for investment only in products offered by that firm. I'm not saying that this is a preferable approach, but it certainly is a common one.

3. If I am interested in getting into the 457 plan administration arena, can I help the water authority establish a 457 plan? In other words, does a county water authority qualify to have a 457 deferred comp plan?

Yes, as long as state law permits this. The Internal Revenue Code permits a section 457 plan to cover employees of any governmental unit.

4. More importantly, can any qualified plan administration firm administer a 457 plan or must the State choose the plan administrator?

This would be purely a question of applicable state law.

5. Are prototype 457 plan documents available?

Yes. However, most of them are drafted by entities wishing to sell investment products under the plan, and typically provide only for investment in that entity's products.

[Guest Ralph Amadio]

It is common practice to offer more than one deferred compensation plan, or to allow more than one provider within a single plan of an employer. If a plan document is drafted that would allow both the "state" plan and the local plan, then, barring statutory prohibition by the state, their should be no problem. Under the new SBJPA requirements for trusts, there should be a real interest in setting up some formal documentation, and the IRS has just issued model language.

Incidentally, the major reason for other plans to exist, casting no aspersions on the Ohio plan of which I know absolutely nothing, is the failure on the part of large state plans to properly service their members, and further, with independent instrumentalities such as you mention, a general mistrust of state retirement systems, some of which have taken on a self-appointed role similar to the pre-reform IRS.